Intel Owes Its Shareholders An Explanation

Feb.26.14 | About: Intel Corporation (INTC)

After Intel's (NASDAQ:INTC) recent showing at Mobile World Congress, particularly as the company's announcements did not involve partners announcing concrete designs, Intel shareholders deserve an explanation from management detailing exactly why the company has faced the problems that it currently does in gaining design win traction (particularly in phones) and how the company plans to remedy it going forward.

The Merrifield Merri-Go-Round

It is no secret that Intel doesn't yet have the right products to really compete in the mobile market today, although it is clear that its products are getting better with time. Its smartphone chips lack the integration levels to really be attractive to the vast majority of OEMs, and its tablet platforms have serious cost structure problems that force Intel to provide contra-revenue support (i.e. rebates) in order to make them usable.

Now, what's unfortunate is that every product launch, Intel will put up encouraging slides saying how great its chips are relative to the competition's in whatever benchmark illustrates the point, but at every product launch design wins don't materialize. Further, with each product launch, we typically learn of a new feature that Intel has added to its SoCs that its competitors have had for multiple generations. In a device like a smartphone, there's far more than just CPU and GPU benchmarks, and Intel's failure to garner meaningful smartphone traction largely stems from this.

At Mobile World Congress, Intel launched Merrifield and Moorefield (which I've detailed here). These are actually pretty solid smartphone SoCs with enough features, performance, and efficiency for mainstream (but not bleeding edge "hero") phones. Unfortunately, while Intel showed off some impressive benchmark numbers, Intel apparently couldn't get a single one of its partners to show off a Merrifield-based design. Qualcomm's (NASDAQ:QCOM) partners had no problems launching smartphone after smartphone with Snapdragon inside.

Why didn't this supposedly great platform fail to win designs worth announcing at MWC? Is the platform/chip missing critical features or was there a timing problem with either the hardware ramp or the software stack? An explanation would be most welcome.

Waiting On You, Bay Trail

Shifting gears to tablets, while Intel touted ">87 tablet wins", Intel's partners didn't have a single one based on Android and the latest "Bay Trail" (that Intel's CEO promised would be on the shelves during the 2013 Holiday season) to show. In Prof. Dr. Eul's keynote, the only Android devices highlighted were Clover Trail+ based - i.e. the ancient Atom that Intel's architects spent a lot of time last year telling us was a really bad design.

Further, while Intel also took the time to show how much better its Bay Trail chip was relative to its competition at IDF, the sad truth is that the Snapdragon 800 (Intel's favorite whipping boy) has been shipping in devices since May 2013 and that chip has already gotten multiple successors over the last several months that were announced at MWC 2014 for launch in the April time frame. It's not as though Bay Trail hardware wasn't ready (it's been shipping on Windows for a long time), but the folks in charge of the software (porting Android, drivers, etc.) apparently dropped the ball.

It's near the end of February and consumers still can't buy an Android-based Bay Trail product. Qualcomm continues to rake in the cash from all of the designs that its various Snapdragon products won. No contra-revenue needed. Investors need to understand exactly what's going on here and why we should have confidence that next year with Broxton things should be a lot better.

Enough Is Enough

Fellow Intel shareholders, we are owed an honest, down-to-Earth explanation for why the company continues to struggle in 2014 while companies like MediaTek thrive, and we are owed some reasonable assurance other than a few PowerPoint slides that Intel won't "miss it by that much" next year.

Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.